How SIP works in India? And how to invest in SIPs in Indian mutual funds?

Introduction

Instead of trying to time the market, how SIP works in India is that they let you invest a fixed amount regularly, say, every month, into the mutual fund of your choice.

This simple yet powerful approach has a cool benefit called rupee-cost averaging. Loads of Non-Resident Indians are already leveraging the power of Systematic Investment Plans (SIPs) to invest in Indian mutual funds.

In fact, The Economic Times states that Mutual fund SIP inflows hit a record high of Rs. 26,632 crore up 3% in April 2025. So, you might be wondering, how SIP works in India?

Well, this blog is here to break it all down for you in simple terms. We'll walk you through the mechanics of a SIP and guide you on how NRIs can easily invest in Indian mutual funds using SIPs.

Whether you're saving for your retirement, your children's education, or simply aiming to grow your capital, SIPs offer a convenient and systematic route.

It's a disciplined, relatively low-risk, and super flexible way to build your financial future.

Indus is providing tailored support and features specifically for NRIs. We aim to make the entire process even more seamless. Let's explore how SIP works in India and how Indus works.

What is SIP and How SIP Works in India?

Working through the stock market is like trying to solve a Rubik's Cube blindfolded. Well, there's a smarter, more relaxed way to grow your money in mutual funds. Enter the Systematic Investment Plan, or SIP. So, know how SIP works in India.

SIPs allow you to invest a fixed amount in your chosen mutual fund at regular intervals – usually every month. Instead of stressing about timing the market with a big lump sum, you simply commit to a disciplined, step-by-step approach.

So, let's dive into how SIP works in India and why it's become such a popular tool for savvy investors among the mutual funds vs stocks debate.

Here’s how SIP works in India:

1) Rupee Cost Averaging

One of the coolest aspects of how SIP works in India is the magic of Rupee Cost Averaging. With SIP, when the price (or Net Asset Value - NAV, as it's called for mutual fund units) of your chosen fund is lower, your fixed investment buys you more units.

Conversely, when the NAV is higher, you naturally buy fewer units. Over time, this clever mechanism helps to average out your purchase cost, potentially reducing the risk of investing a large sum at a market peak.

2) Power of Compounding

But the benefits don't stop there! The second powerful force at play in how SIP works in India is the incredible Power of Compounding. Albert Einstein famously called compound interest the "eighth wonder of the world," and for good reason.

With SIPs, your regular, smaller investments get the chance to grow over time, and as those investments generate mutual fund returns, those returns also start earning returns. It's a snowball effect.

3) NAV (Net Asset Value)

Finally, let's touch upon the NAV (Net Asset Value) under how SIP works in India. When you invest in mutual funds, you're essentially buying units of that fund, and the price at which you buy or sell these units is the NAV.

With SIPs, you don't need to constantly fret about whether the NAV is "high" or "low" on any given day. Because you're investing regularly, you automatically participate in both market highs and lows.

This takes the emotional rollercoaster out of investing and allows you to focus on the long-term growth potential.

The fact that India boasts over 6 crore SIP accounts as of March 2025, according to AMFI, speaks volumes about the growing trust and understanding among everyday investors about how SIP works in India and its potential to build wealth steadily.

Benefits of SIP for NRIs in Indian Mutual Funds

Systematic Investment Plans (SIPs) come packed with some seriously cool advantages tailor-made just for NRIs like you who are keen on investing in Indian mutual funds. Let's explore the fantastic perks of how SIP works in India for your financial growth.

1) Disciplined Approach

First up, say goodbye to the stress of trying to be a market guru! One of the standout benefits of SIPs is Disciplined Wealth Creation.

Moreover, by automating your investments at regular intervals, you're essentially building a solid saving habit without even having to think about it every month.

Among factors of How SIP works in India, this takes the guesswork out of investing and fosters a disciplined approach that can yield impressive results over time.

2) Flexibility

Next, get this: you don't need a truckload of cash to get started. SIPs offer incredible flexibility, thus allowing you to begin your investment journey with amounts as low as Rs. 500 per month.

This low entry barrier makes investing accessible to everyone, regardless of their current income level. Thus, it's a fantastic way for NRIs to dip their toes into the Indian mutual fund market without feeling a significant financial strain.

However, you can gradually increase your SIP amount as your income grows, thus giving you even more control over your investment strategy by knowing how SIP works in India.

3) No need to time the market

Now, let's talk about taking the emotion out of investing. With SIPs, there's No Market Timing Needed. Forget about constantly checking market fluctuations and agonizing over whether it's the "right" time to invest a lump sum.

Because you're investing regularly, you naturally buy more units when the market is down and fewer when it's up (remember that rupee-cost averaging we talked about?).

Thus, this systematic approach helps to smooth out the volatility of the market and reduces the risk of making emotional investment decisions based on short-term market noise. It's a much more Zen way to approach how SIP works in India.

It is however vital to watch out for mutual fund overlap to understand how SIP works.

4) Currency Arbitrage

Over the long term, the Indian Rupee (INR) has generally shown a tendency to depreciate against major foreign currencies like the US Dollar or the UAE Dirham.

Therefore, you play the long-term game. When you eventually redeem your investments and convert the INR back to your foreign currency, the depreciated rupee could translate to maximized returns in your home currency.

Moreover, understanding how SIP works in India in this context can be a game-changer for your international investment strategy.

5) Indus’ Lower Conversion Cost

Finally, to make your investment journey even more cost-effective, Indus provides a Lower Conversion Cost, potentially with FX rates that are more favorable than traditional channels.

Thus, this means that when you send money from your foreign account to fund your SIPs, you get more value for your foreign currency, maximizing your investment potential.

This enhances the appeal of how SIP works in India for the global Indian community.

Can NRIs Invest in SIPs in India? Is it Legal and Safe?

You're probably wondering, "Can I actually do this legally and safely from overseas?" Yes.

NRIs can absolutely invest in Indian mutual funds through SIPs, all within the well-defined guidelines set by the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA).

Additionally, understanding how SIP works in India for NRIs also involves knowing the regulatory framework that makes it possible.

You can invest in India through Indus. You can also kick start your SIP with Indus from New Zealand. Want to know more? Check out our simple guide on how to invest in Indus to see how you can make your investment journey a little easier.

1) Need for NRE/NRO account

First and foremost is having the right type of bank account in India. You'll typically need either a Non-Resident External (NRE) account or a Non-Resident Ordinary (NRO) account.

Furthermore, the choice between these usually depends on whether you want the flexibility to repatriate your investment returns and the principal amount back to your country of residence.

NRE accounts generally offer this repatriation, while NRO accounts are for managing income earned in India. Ultimately, setting up the correct bank account is a foundational step in understanding how SIP works in India for NRIs.

2) Lengthy KYC

This is a standard procedure to verify your identity and ensure the integrity of the system.

Moreover, for NRIs, this typically involves submitting documents like a copy of your passport, overseas address proof, and details of your valid Indian bank account (either NRE or NRO).

Think of it as the essential paperwork to get your investment ball rolling.

3) How safe?

Now, let's address the big question of safety. Rest assured, SEBI has put in place a robust framework of rules and regulations on mutual fund investments in India to protect investors and ensure transparency in the mutual fund industry.

Additionally, this oversight makes investing in SIPs a safe and transparent investment option for everyone, including NRIs.

Furthermore, this focus on efficiency and security underscores the commitment to making how SIP works in India accessible and trustworthy for the NRI community.

4) Strategically Select Your Mutual Fund

It's time to choose the right mutual fund category based on your financial goals and risk tolerance.

• Potentially high-growth Equity funds for long-term objectives

• More stable Debt funds for shorter horizons, and

• Hybrid funds offering a blend of both.

• Check for expense ratios

Understanding these categories is key to seeing how SIP works in India aligns with your specific financial plan. Thus, consider your investment timeline and how much risk you're comfortable with.

Popular Mutual Funds to Start SIPs in 2025

Choosing the right mutual fund is a crucial step in understanding how SIP works in India to achieve your financial goals.

Here are a few well-regarded options across different categories that you might consider as you begin your SIP investments this year, keeping in mind your risk appetite and investment horizon.

These funds invest in a combination of small-cap vs large-cap equity funds.

Nippon India Large Cap Fund:

This fund primarily invests in large-cap companies, which are generally well-established and stable players in the Indian economy.

Also, use benchmarks like Nifty Alpha and Momentum Index to track your fund’s performance.

Consequently, understanding how SIP works in India with a large-cap fund like this can provide a solid foundation for long-term growth without excessive risk. It's a popular choice for investors seeking consistent returns from established market leaders.

Parag Parikh Flexi Cap Fund:

For investors seeking diversification across market capitalizations and even some international exposure, this fund offers a well-managed approach.

Therefore, grasping how SIP works in India with a flexi-cap fund like this can provide broader market participation and potentially higher growth opportunities. Its flexible nature allows the fund manager to adapt to changing market dynamics.

ICICI Prudential Balanced Advantage:

This hybrid fund dynamically manages its asset allocation between equity and debt based on market conditions and thus offering potential high returns of equity and the stability of debt funds.

As a result, understanding how SIP works in India with a balanced advantage fund can be a good strategy for those with a moderate risk appetite seeking smoother returns over time.

HDFC Short Term Debt Fund:

For investors who prioritize capital preservation and are looking for a safer investment option under how SIP works in India with relatively stable returns over a shorter time frame, this debt fund primarily invests in short-term debt instruments.

Thus, while how SIP works in India with a debt fund differs from equity in terms of potential returns, it offers a lower-risk avenue for parking funds and potentially earning modest but steady returns.

Overall, this is often suitable for conservative investors or for meeting financial goals with a shorter time horizon.

SIP vs Lump Sum Investment – Which is Preferred for NRIs?

For NRIs eyeing the Indian investment landscape, the choice between SIP and lump sum investments is a key consideration.

Moreover, understanding how SIP works in India compared to a one-time investment can significantly impact your returns and risk exposure.

Check out our insights on avoiding some of the Common SIP myths and top 5 mutual fund mistakes that investors and NRIs should avoid while learning how SIP works in India.

Why Indus is the Ideal Platform to Start SIP Investments in India as an NRI

Indus stands out as an ideal choice, specifically designed with the unique needs and challenges of NRI investors in mind. We are simplifying the understanding of how SIP works in India from an international perspective.

Spoiler alert, you don’t need an NRE/NRO account when you sign up with Indus.

1) Built Specifically for NRIs Firstly, Indus is designed to cater to the specific compliance requirements and accessibility needs of NRIs. This will enhance their understanding of how SIP works in India within their unique context.

2) Unbeatable FX Rates Furthermore, Indus offers the lowest foreign exchange (FX) rate at just 1%. This boosts the overall returns you can potentially earn from how SIP works in India.

3) Lightning-Fast Onboarding Indus streamlines the often tedious KYC process for NRIs, in as little as 3 minutes.

As a result, you can start your SIP without unnecessary delays and swiftly understand how SIP works in India practically.

4) Extensive Fund Selection Indus provides access to a wide array of over 500 mutual funds from India's leading and most trusted fund houses.

Consequently, you can easily explore and select funds that match your investment strategy, ensuring that how SIP works in India can be tailored to your individual needs.

5) Transparency and Future Growth Finally, Indus is committed to transparency, currently focusing on providing access to Indian vs NZ mutual funds.

However, Indus has plans to expand its offerings soon to include direct investment further enhancing how SIP works in India as part of a broader investment strategy.

SIP Taxation Rules for NRIs Investing in Indian Mutual Funds

The taxation of your SIP returns depends on the type of fund (equity or debt) and the holding period.

But here’s the thing. Indus works through the DTAA for you and we ultimately take care of your taxes.

Let's break down the key aspects of how SIP works in India from a tax perspective for NRI investors.

1) Equity Fund Taxation

Firstly, for equity mutual funds, if you hold your investments for more than one year (Long-Term Capital Gains or LTCG), any gains exceeding ₹1 lakh in a financial year are taxed at a rate of 12.5%.

On the other hand, if you sell your equity fund units within one year (Short-Term Capital Gains or STCG), the gains are taxed at a rate of 20%, regardless of the amount.

Finally, this is an important aspect to consider when assessing how SIP works in India for your overall returns.

2) Debt Fund Taxation

Next, the taxation rules for debt mutual funds under how SIP works in India differ based on the holding period.

So, if you sell your debt fund units within three years STCG, the gains are taxed according to your income tax slab rates in India.

However, if you hold them for more than three years LTCG, the gains are taxed at a rate of 20% with the benefit of indexation, which adjusts the purchase price for inflation.

Thus, this potentially reduces your tax liability and influences your understanding of how SIP works in India for fixed-income investments.

3) Tax Deduction at Source (TDS) for NRIs

Furthermore, it's important to note that mutual funds in India are required to deduct Tax Deduction at Source (TDS) on the capital gains earned by NRIs.

Moreover, the rates range from 10% to 30% depending on the type of fund and the tenure of your investment.

Therefore, NRIs should be aware of these TDS provisions, which are a part of the regulatory framework governing how SIP works in India for non-residents.

4) Double Taxation Avoidance Agreements (DTAA)

Additionally, India has entered into Double Taxation Avoidance Agreements (DTAA) with over 90 countries.

Consequently, understanding the provisions of the DTAA applicable to your country is crucial for optimizing your tax planning when considering how SIP works in India and its overall financial impact.

5) Tax Reporting Assistance

Finally, while Indus simplifies tax compliance by helping you generate tax statements that can aid in your tax reporting, it's essential to remember that they do not provide tax filing advice.

Therefore, for accurate tax filings and personalized guidance based on your specific circumstances and the nuances of how SIP works in India for NRIs, it's always recommended to consult with a qualified tax advisor.

Conclusion

So, what's the bottom line for you, NRI looking to grow your wealth? Simply put, learning how SIP works in India unlocks a remarkably effective and user-friendly path to long-term financial growth.

And guess what? Indus is making this journey even smoother and more rewarding.

Imagine getting your KYC done in just three minutes, exploring a vast universe of over 500 mutual funds, and enjoying the significant advantage of the lowest 1% FX rate on your transactions.

SIPs through mutual funds stand out right now as the most secure and hassle-free way to participate in India's economic story.

Start your SIP journey with Indus today and experience firsthand how SIP works in India to build your wealth, your way. Explore Indus and begin investing in India with ease!

FAQs

1) What exactly is a SIP, and how SIP works in India?

A Systematic Investment Plan (SIP) is a method of investing a fixed sum of money in a mutual fund at regular intervals, typically monthly. How SIP works in India is by automatically deducting this amount from your bank account and purchasing units of the chosen fund.

2) As an NRI, can I invest in SIPs in India?

Yes, Non-Resident Indians (NRIs) can legally invest in Indian mutual funds through SIPs, provided they comply with RBI and FEMA guidelines. To do so, you'll need an NRE or NRO bank account and complete the necessary KYC procedures.

3) What are the key benefits of investing in SIPs?

Key advantages of SIPs include the power of rupee cost averaging, which helps reduce the average cost of your investment over time. Knowing how SIP works in India highlights these benefits for consistent financial discipline.

4) How do I choose the right mutual fund for my SIP?

Selecting the right mutual fund depends on your financial goals, risk appetite, and investment horizon. Consider factors like the fund's past performance, expense ratio, and the fund manager’s experience. Understanding how SIP works in India across different fund categories (equity, debt, hybrid) will guide your decision-making process.

Standard Disclaimer

Investing involves risk, and returns are not guaranteed. Please conduct your own research before making any investment decisions. This information is provided for general purposes only and does not constitute financial advice.

Indus does not provide investment, financial, legal, or tax advice. While we facilitate access to Indian mutual funds, any decision to invest is solely your responsibility. You should consult a qualified financial adviser or tax specialist before making any investment or tax-related decisions, especially if you are uncertain about how these investments apply.